Arizona Senate panel votes for reviews of sales tax breaks

Republicans and Democrats on an Arizona Senate panel came together Wednesday to back legislation requiring regular reviews of more than $12.3 billion in exemptions in the current sales tax code.

Sens. Steve Farley, D-Tucson, and David Farnsworth, R-Mesa, are co-sponsoring the bill approved by the Senate Finance Committee, although for different reasons.

Farley said more than 330 current tax breaks for specific businesses or transactions are creating an uneven playing field and starving the state of needed revenue. Farnsworth said he sees the reviews as a way to broaden the tax base so income taxes can be lowered.

A provision in Senate Bill 1144 making existing tax breaks automatically expire in 10 years was removed Wednesday. It passed unanimously and now heads to the full Senate for debate.

Farley said he’s been railing for years about the breaks in what is formally known as the Transaction Privilege Tax. The state taxes not only retail sales, but many normal transactions such as home improvements and business purchases. He said the current $12.3 billion in exemptions needs review.

“Most of these were placed over the course of decades by special interest lobbyists trying to get a break for their clients,” Farley said. “What they do in aggregate is they create an unfair, un-level playing field for people or industries who collect sales tax.”

Farley cited exemptions on the sale of 4-inch pipe used by gas companies, while 3-inch pipe users must pay sales tax. That tax break benefits Southwest Gas, which Farley said has argued it should have the break because electric companies do not pay tax on wires needed to deliver their product.

Farley said that amounts to a special break that average people cannot get.

“The guy who installs carpet for a living has to buy a truck to deliver his product to market and he can’t get a lobbyist to come down here and get him out of paying sales tax on his truck,” Farley said.

Eliminating just $2 billion in sales tax breaks could allow the state to cut sales tax rates by a penny and still provide $1 billion for K-12 schools, he said. The state collected $4.3 billion sales taxes in the last budget year, while state spending for the current year set at $9.6 billion.

Farnsworth said he has a different motive than Farley for backing the reviews.

One comment

The broader the tax base the lower the tax rate … got it. I’d add … the more diverse the tax base the more resilient we are as a state when faced with the vicissitudes of a free market economy.

Eliminating another source of revenue (we did away with state property tax years ago) such as income tax just makes us even more vulnerable to a reduction in transaction taxes during the next downturn.

By focusing on transaction taxes it just seems we are doomed to repeat the same boom – bust thinking that created the last crisis … and the one before that …